Contents

CHAPTER 1

The Basics
Numbers Data integrity Data richness Fonts legibility Typography in charts Color basics Color palettes Color in charts Color chart templates Coloring for the color blind Color scale application

CHAPTER 2

Chart Smart
Lines Vertical bars Horizontal bars Pies Tables Pictograms Maps

CHAPTER 3

Ready Reference
Do the Math Mean, median, mode Standard deviation Average vs. weighted average Moving average Logarithmic scale Comparable scales Percentage change Re-indexing to 100 or 0

Percentages Expressing percentages Absolute values vs. percentage changes Percent of a percentage Dont average percentages Copy Style in Charts Words Numerals Money Stock indexes Currencies

CHAPTER 4

Tricky Situations
Missing data Big numbers, small change Comparable scales Coloring with black ink

CHAPTER 5

Charting Your Course

Mapping it out Before you set out Staying on track Managing costs & resources

CHAPTER 6

Know Yourself, Know Your Numbers

Your investments Your retirement Just your luck

Pies
Slicing and dicing
Pie charts should not be used to illustrate complicated relationships among many segments. It is easier to compare two vertical bars than two slices in a pie.

Less effective order

Its intuitive to read top to bottom and clockwise. Never chart segments clockwise from smallest to largest. By ordering the slices from smallest to largest in clockwise direction or vice versa, the least important segment has the most prominent position.

Too many slices

Its difficult to compare and contrast between many segments. A pie chart shouldnt have more than five slices. If there are more than five, combine the smaller and less significant segments to create the fifth slice and label it Other. If all segments have to be represented separately, use a stacked or segmented bar chart instead. See page 79.

Chapter 2

CHART SMART

Larger segments on top

start here

2nd largest 3rd 4th

The only exception to the ordering is when all the slices are close in value. In this case, start at 12 oclock on the right and go clockwise from largest to smallest.
15% 35% 20% 30%

largest segment

Reading a pie chart is like reading a clock. Its intuitive to start at 12 oclock and go clockwise. Therefore, it is most effective to place the largest segment at 12 oclock on the right to emphasize its importance. The best way to order the rest of the segments is to place the second biggest slice at 12 oclock on the left; the rest would follow counterclockwise. The smallest slice will fall near the bottom of the chart, in the least significant position.

Just like in bar and line charts, direct labeling helps the reader to quickly identify individual segments and focus on the comparison between them.

Horizontal Bars
Ordering and regrouping
Just as in a vertical bar chart, do not use different shades or 3-D rendering in a horizontal bar chart. Similar to a vertical multiple-bar chart, a horizontal multiple-bar chart should be kept to four or fewer categories. The shading of the bars should be assigned from lightest to darkest so the reader can easily compare and contrast the data.

No random lineup
Dont plot horizontal bars in a random order. The main quality of a horizontal bar chart is the ranking of items by the same attribute. Plotting the bars in an arbitrary sequence defeats the purpose.

U.S. China Italy Germany France 1.1 4.1

7.1 9.1 6.1

Avoid grid lines and scale

Horizontal bars are not as easy to compare as vertical bars. Using a scale and grid lines would make it even harder to discern the relative lengths of the bars. Direct labeling is cleaner and clearer.
China U.S. Italy Germany France 0 2 4 6 8 10

Chapter 2

CHART SMART

The right order

A horizontal bar chart is most useful when ranking the items by the same characteristic, such as ranking the countries by sales of a product. The bars should be ranked from the largest to the smallest or vice versa. A specific bar can be highlighted with a different shade.
China U.S. Italy Germany France 1.1 4.1 7.1 6.1 9.1

When plotting horizontal bars over time, the bars should be ordered from the most recent data point and going back in time.
2010 2009 2008 2007 2006

The exception to the rule of ranking by value is when a specific order, such as alphabetical order, is necessary to facilitate easier reading. An example would be plotting a chart with 50 states.
Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware . . . Wyoming

For a long list of horizontal bars, label the data points flush right and use thin rules to separate the bars in groups of three to five to help the readers read across.
A B C D E F G H I J K L 12.1 11.1 10.1 9.1 8.1 7.1 6.1 5.1 4.1 3.1 2.1 1.1

Fonts
Typography in charts
In charts, typography should not be center stage. The data is the focus. Type in charts is there to describe the chart clearly and not to evoke an emotion, as in a fashion magazine or political poster. Poor typography draws undue attention away from the underlying data, which carries the main message. The impulse to use type styles to spice up the chart should be avoided at all costs. Typography done right helps present the information in the most efficient and direct way. Dont permit typography to oppress the underlying data. Keep the typography simple. The headline can be either bold or a couple of sizes larger. Headline of the chart
A brief description that outlines what the data shows
8 6 4 2 0
A B C To wn To wn To wn To wn D

Dont

Do

Dont use all caps or knock white type out of black. Dont use bold italic. Dont use bold for the numbers on the scale.

HEADLINE OF THE CHART

A brief description that outlines what the data shows
8 6 4 2

Dont set type at an angle.

Town A Town B Town C Town D

Alternatively, chart the data as horizontal bars to accommodate long names.

Town A Town B Town C Town D 2 4 6 8

Chapter 1

BASICS

Dont

Dont use highly stylized fonts or turn the type sideways to save space.

Do

Serif and sanserif fonts can complement each other and add variety, and are still highly legible.

Headline of the chart

A brief description that outlines what the data shows
Title of y-axis

A brief description that outlines what the data shows

Title of y-axis

Title of x-axis

Title of x-axis

Dont

Dont knock white type out of black or color. Legibility is compromised.

Label B Label C Label D

Do

Use bold to increase legibility on a shaded background or to emphasize a segment.

Label B Label C Label D Label A

Label A

Label B Label C Label D

Label A

Dont

Dont set a huge amount of text in bold. Emphasizing everything means nothing gets emphasized.
Name Company A Company B Company C Company D Data 0.0 0.0 0.0 0.0 Data 0.0 0.0 0.0 0.0 Data 0.0 0.0 0.0 0.0

Do

Use bold type to emphasize the focal point of the message. Be judicious.
Name Company A Company B Company C Company D Data 0.0 0.0 0.0 0.0 Data 0.0 0.0 0.0 0.0 Data 0.0 0.0 0.0 0.0

Your Investments
Get rich quick?
What you see may not be what you get. In many investors reports, the returns shown are the arithmetic rate of return. In reality, over the long run investors are getting the compounded (geometric) rate of return. Example A hot fund gained 100% last year. The following year, an investor puts his money into the fund but the fund loses 50%. The investment report publicizes a 25% gain, based on a two-year average. However, the investor loses half his money.

Arithmetic vs. Geometric rate of return

Arithmetic rate of return: Simple average of the rate of return in each year Geometric rate of return: Compounded rate of return of initial investment
Example

How well did stock A perform?

Year 0 1 2 3 4

Price $100 150 75 90 72

Annual rate of return +50% 50 +20 20

Arithmetic return = Average of annual rates of return = (+50% 50% + 20% 20%) /4 = 0% Geometic return = Annualized appreciation over four years =
4

72 1 = 7.9 % 100

This means stock A loses 7.9% per year. How the math works:
Year 0 1 2 3 4 Annualized rate 7.9% 7.9% 7.9% 7.9% Stock value $100 92 85 78 72

Chapter 6

K N O W Y O U R S E L F, K N O W Y O U R N U M B E R S

If our funds are compounded at the average annual rate of return, we will all be rich in no time.
Example

For the quants: The difference between arithmetic return and geometric return is due to the dispersion of annual returns.
Geometric return = Arithmetic Adjustment return factor where adjustment factor

Imagine an investment of $10,000 growing at a 20% average rate of return.

Year 1 2 3 4 Average rate of return:

Return 20% +50 +100 50 +20% or 0.2

Myth It would be a mistake to believe your funds are compounding at 20% a year: $10,000 x (1 + 0.2)4 = $20,736 Reality Your funds compound at 4.7%. Based on the geometric return, the account will be worth only $12,000. Compounding the arithmetic return grossly overstates the growth by more than $8,000.
$30,000 $24,000 20,000 10,000 $8,000 0 Year 0 1 2 3 4 $12,000

(Standard deviation)2 of annual returns =

2
The adjustment factor is a numerical approximation to the exact difference between the two.

Myth
Compounded at average rate: $20,736

Reality
Accumulated value: $12,000

What does it mean for you? For a short-term investment horizon with deposits and withdrawals during the period, the arithmetic return is sufficient. For a long-term investment horizon when returns are compounded, the geometric return is more meaningful.